A possible CFTC solution for REFCO LLC

The quick solution to this matter would be for the CFTC like the Fed Reserve did with LTCM should in essence encourage/coerce competing FCMs â FIMAT, Man or even Goldman (who is their âfinancial advisor and underwriter", Goldman could very easily merge REFCO LLC with the old SLK now known as GSEC) to assume the client accounts of REFCO LLC. This way they prevent the firestorm mass exit that could cripple the firm and harm ALL parties.

Instead the CFTC just keeps issuing stupid press releases while REFCO is being pummeled to death by fleeing customers.

The point here is that REFCO LLC apparently should be a able to remain a viable business but without a white night the liquidity crisis and crisis of confidence will destroy every unit of REFCO and possibly (God forbid) many account holders and employees.

This is crazy. The SEC is chasing hedge funds to register, but the SEC/CFTC can not regulate massive enterprises.

Our financial system is far weaker than we think and it makes me shudder in frightâ¦â¦â¦â¦â¦..

P.S. Why do people do bad things? Why did Bennet & Maggio do what they did? And how do you lose $500M. WHy not pull the plug on the customers, why no internal risk control to prevent customer/customers from exposing REFCO to such losses/ SO many whys?

Now this is what should have been done on Monday or Tuesday at the latest.... Finally some folks are thinking!

NEWS ALERT
from The Wall Street Journal

Oct. 14, 2005

In an attempt to bring stability to the crisis at Refco, regulators have asked Goldman Sachs and other firms to buy or assume financial responsibility for its massive futures trading operation, people familiar with the matter said.

Now this is what should have been done on Monday or Tuesday at the latest.... Finally some folks are thinking!

NEWS ALERT
from The Wall Street Journal

Oct. 14, 2005

In an attempt to bring stability to the crisis at Refco, regulators have asked Goldman Sachs and other firms to buy or assume financial responsibility for its massive futures trading operation, people familiar with the matter said.

P.S. Why do people do bad things? Why did Bennette & Maggio do what they did? And how do you lose $500M. WHy not pull the plug on the customers, why no internal risk control to prevent customer/customers from exposing REFCO to such losses/ SO many whys?

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Maggio's behavior is certainly questionable at the very least.
I could go on and on about his failure to provide due oversight on two brokers involved in the 2001 private stock placement, but I am sure that you are all very aware of that issue.

In my opinion, I believe that the "uncollectible debts" from Liberty Capital were most likely a bunch of "broken" trades that could never be settled that stemmed from the 1998 Asian Currency Crisis.
It's just a guess on my part, and I could be totally wrong but I think it goes to explain why these trades were never written off as losses in the first place. We shall find out soon enough though next week.

In the meantime, the NYMEX has stated that REFCO is in good standing as a clearing member.

Every FCM/IB/Trading House has an error account fo rbroken trades and in 1998 there surely couldhave been anincrease in broken trades...but in my experience I thought most firms had a policy: the immediate liquidation of broken trades so as to eliminate further markt risk/exposure.

Givne that thinking, I don't know how REFCO got in this mess? if it were futures contracts, they wold have long expired and been cash settled or required physical dleivery. If they were cash/OTC trades in say spot FX, options, etc, why were the trades NOT closed immediately and how could they suffer such a huge loss.

There are so many unanswered questions.....

And some reports have said that apart from Bennet only Maggio knew about this mess, how come NO ONE ELSE in REFCO knew - I don't belive that!!

Books and movies will be made on this fiasco.

In the meantime, I pray GS/CSFB/BofA are coerced into assuming REFCO LLC.

Who would touch these assets with all the outstanding litigation going on?

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The futures accounts are valuable assets.

The accounts are segregated and regulatory agencies account for the funds held in these accounts on a DAILY basis.

A potential buyer would obviously ask for a waiver of any sort of liability concerning these accounts. However, with that having been said these accounts are probably quite solid and are attractive to a potential acquirer.